Sea Limited is a promising e-commerce, finance, and gaming company storming Southeast Asia, nicely distanced from Amazon’s U.S. and EU empire
Sea Limited (NYSE: SE) is a $100 billion company based in Singapore and operates 3 core businesses across Southeast Asia and Latin America — Shopee in e-commerce, SeaMoney in digital financial services, and Garena in digital entertainment and gaming. The company thrived in 2020, surging 385%, due to the increased demand for online shopping and gaming which consequently rely on Sea Limited’s very own financial services platform. Sea Limited is a great alternative investment to Amazon thanks to its higher growth-potential yet cheaper entry point, trading around the $200 mark at the time of writing.
The bull case for Sea Limited
Sea Limited benefits from 3 diversified and well-established core businesses.
Shopee is paving the way for e-commerce in Southeast Asia with the most monthly active users. Shopee is focused on creating a shopping experience that is personalized by leveraging AI and AR-powered tools to help brands deliver a unique and enjoyable shopping experience. Rather than just offering the cheapest price and fastest delivery, like Amazon, Shopee is focused on engaging customers and it brings a social aspect to online shopping. The company has introduced a range of social and engaging features; Shopee Live Chat, where buyers can speak to sellers directly before purchasing; Shopee Feed, where users can share content on what they’re listing, selling, and buying, and Shopee Live and Shopee Games, where users can live stream or play games in-app. Shopee had a Q3 2020 revenue of $618.7 million, a year-on-year (YoY) increase of 173%.
Garena is a leading global online games developer and publisher. The global gaming market was valued at $151.55 billion, with an expected Compound Annual Growth Rate (CAGR) of 9.17% bringing the 2025 estimated valuation to $256.97 billion. Latin America is the region with the highest growth rate — an area that Garena has been focusing on, with its Free Fire registering as the highest-grossing mobile game in Q3 2020 (as well as in Southeast Asia). Q3 2020 saw an impressive 124% YoY increase in paying users, with $944.7 million in bookings and $584.5 million in adjusted EBITDA.
SeaMoney is an internally-developed financial payments platform that Sea Limited has integrated into the rest of its business, namely Shopee. Over 30% of transactions on Shopee are made using SeaMoney. This segment of the business is relatively tiny, though has huge growth potential — revenue grew from just $1.7 million in Q3 2019 to $14.4 million in Q3 2020. The company has recently been awarded a Singaporean digital banking license, which opens many doors for the company in regards to mobile payments and banking. MercadoLibre (NASDAQ: MELI) has shown us that payments can be big business, and I think that Sea Limited’s payments segment is only getting started and will follow in the footsteps of MercadoLibre.
The bear case for Sea Limited
The bear case for Sea Limited is very outweighed by the bull, but there are still a couple of things to be aware of as an investor. The company’s losses are concerning — having not yet reported a profitable quarter since its IPO in 2017. The company’s net loss for Q3 amounted to $425.3 million, more than double 2019’s loss, though I find the company’s 87% increase in sales and marketing expenditure to $471 million as a huge positive in terms of future growth.
Garena is currently the only profitable segment, with Shopee and SeaMoney still unprofitable. On the bright side, Shopee’s adjusted EBITDA loss per order decreased to $0.86 in 2019 from $1.42 in 2018. I suspect we will see a further reduction when 2020’s financials are announced.
The company has some notable competitors, like Alibaba and its subsidiary Lazada, as well as Tencent. Alibaba is a much more established company, but I am confident Sea Limited will be able to fend for itself and continuously grow, thanks to its diversified core businesses.
Should Sea Limited be worried about Amazon?
In my opinion, no. Amazon entered the Southeast Asian market in 2017 and it has yet to materialize. Southeast Asian shopping culture has shown that it is more interested in ‘shoppertainment’, which Shopee is excelling in, and Amazon simply does not cater for this and instead opts for a low-cost, low-functionality, and unengaging platform (which, works flawlessly in the EU and US). Consumers want a mobile-orientated and social shopping experience, like Shopee — which Amazon has not yet adapted to; and it doesn’t plan on doing so. I believe Sea Limited’s growth is here to stay.
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